It hasn’t even been six months since Ben, an astute observer of financial matters, noted that the spread between a 5-year fixed rate mortgage (FRM) and a variable-rate mortgage (VRM) was unusually low and it may be better to buck the conventional wisdom and opt for a fixed-rate mortgage. Not anymore. Fixed-rates have been relatively steady — according to Invis, a mortgage broker, the “best” 5-year rate available currently is 4.09%, just a smidgen higher than the rate reported earlier. But with the credit crisis easing, VRMs have become much cheaper. While the best rate available on a VRM just six months back was Prime plus 0.80%, today Invis is offering VRMs at Prime plus 0.10%.
Canadian Mortgage Trends reported just the other day that BMO has lowered its variable rate to prime and other banks may follow suit. With a spread of 1.75% between a FRM and VRM and the Bank of Canada saying it intends to keep rates level until 2Q-2010, VRMs may once again be poised to deliver savings over FRMs. The usual caveats apply: mortgagees opting for VRM take on the risk of a spike in interest rates in return for the potential to save interest on their mortgage.